Medicare boasts of supply bids

Medical equipment suppliers are lining up in droves to take part in a new Medicare competitive-bidding program the industry has sharply criticized for being exclusionary, according to a senior official.

Centers for Medicare and Medicaid Services (CMS) acting Deputy Administrator Herb Kuhn said on Wednesday that the agency received more than 6,300 bids in the first round of the program to provide equipment ranging from oxygen tanks to power wheelchairs to walkers.

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That level of interest, Kuhn said, represents the industry’s desire to stay in the Medicare market and suggests that the program will have the desired effect of generating competition among providers.

To the industry, though, the number only means that suppliers are going along because they have no other choice.

Suppliers warn that low-balling on price will drive companies out of the market and limit the availability of the equipment to beneficiaries.

“There’s no option here. If you’re not part of the process, you’re foreclosed,” said Mark Leahey, the executive director of the Medical Device Manufacturers Association.

“It’s anything but competitive because, at the end of the day, you’re going to be eliminating people from the market,” said Walter Gorski, the vice president of government affairs for the American Association for Homecare.

For a typical provider of home medical equipment, sales to Medicare patients make up 35 percent to 50 percent of their revenue, Gorksi said.

The competitive bidding program is designed to save billions for taxpayers and Medicare beneficiaries by replacing the current government-established prices with those derived from market forces, which CMS anticipates will be lower.

Accredited suppliers are eligible to bid on 10 product areas. CMS sets the price at the median bid and the suppliers are then offered the opportunity to sign contracts and sell those products at those fixed prices for three years.

Being asked to accept that bid or stay out of Medicare will put suppliers in a bind. For suppliers, it’s a take-it-or-leave-it proposition.

“People are going to be offered contracts … and find that the reimbursement rates will be less than the ones they submitted,” Gorski said.

The Bush administration characterizes the program as an attempt to inject market forces into Medicare and reduce federal spending. In the first round, which the agency is now evaluating, the program rolled out in 10 metropolitan areas with plans to expand to the whole country in 2009. Congress authorized the program in 2003 as part of the same law that created the Medicare Part D prescription drug benefit.

“Competitive bidding means that Medicare beneficiaries will have access to these products at substantially lower costs,” acting CMS Administrator Kerry Weems said in a written statement. In most cases, beneficiaries pay 20 percent of the Medicare price for their equipment and supplies.

CMS says its confidence that the program will work is based on demonstration projects conducted in Polk County, Fla., and San Antonio from 1999 to 2002.

Congress and medical device, equipment and supplies manufacturers have been eagerly and nervously awaiting some sign from CMS about how the first round of bidding, which takes effect in April, has gone.

This interest has been intensified by a CMS announcement earlier this month that it would begin the second round of bidding in the coming months, extending the program to 70 additional geographic areas, including the New York, Los Angeles and Chicago regions.

Medical equipment suppliers decried the expansion as premature. “We are deeply concerned that CMS is expanding a program before the first phase has started and the impact on beneficiaries’ access to supplies has been evaluated,” Advanced Medical Technology Association President and CEO Stephen Ubl said in a written statement.

Kuhn did not specify how many companies bid, how many of the bids were for what products or how many bids were submitted in the 10 metro areas. But he maintained that the sheer number of them illustrates that suppliers will do what it takes to participate in a market that makes up a huge percentage of their books of business. Kuhn was not available for comment on Thursday.

CMS estimates there are 30,000 medical equipment suppliers in the 100 most populous geographic areas most affected by the program.

The details matter, industry representatives said. A program in which a handful of companies submit and win bids for multiple products in multiple markets will produce a very different marketplace than one in which many companies provide many products in the different areas, they said.

CMS has set aside 30 percent of the contracts for small suppliers, defined as those with annual revenue below $3.5 million, but the industry maintains the bidding and pricing system will make it difficult for smaller providers to remain in the market. The risk to beneficiaries, they maintain, is that supply will not be able to meet demand and that the smaller firms that develop new products will lack the money for research and development.